They Hate the Fed

Money for Nothing: Inside the Federal Reserve

President Obama with outgoing Federal Reserve Chair Ben Bernanke and Vice-Chair Janet Yellen, who Obama had just announced was his nominee to replace Bernanke, the White House, October 9, 2013

America’s animosity toward central banks dates to the administration of George Washington, when Alexander Hamilton proposed the creation of a Bank of the United States to organize the debts of the states, establish a common currency, and promote manufacturing in the young nation’s economy. Thomas Jefferson feared that such a powerful joining of finance and state would lead to tyranny; Washington also had doubts but let the bank go ahead. Two decades later, Jefferson’s protégé, James Madison, allowed the bank’s charter to expire, only to realize he had made a mistake. He prevailed on Congress, in 1816, to create the Second Bank of the United States. It succeeded in establishing a uniform currency—a vital achievement—but Andrew Jackson loathed the bank as a bastion of financial privilege favoring East Coast elites. Jackson vowed to destroy the bank—and destroy it he did.

Foreigners could scarcely comprehend Americans’ disdain for central banks, which by the nineteenth century were vital to the financial systems of England, Prussia, France, and other states. Alexis de Tocqueville, who visited the US during the Jackson era, diagnosed the “intense hatred” of the Second Bank as a sign of America’s enmity toward central government. Later, after several serious depressions, Wall Street lobbied for a lender of last resort and, in 1913, Congress created the Federal Reserve.

But Jackson’s argument—that a central bank posed a dangerous threat to the private market, and would favor the interests of the powerful and rich—was raised by opponents of the Fed in 1913, and it has been raised one hundred years later by the critics of the current Fed chairman, Ben Bernanke. The difference is that while populist anger against central banks previously came from the political left, these days the attacks on the Fed come mainly from the right. Such is the case with Jim Bruce’s film Money for Nothing: Inside the Federal Reserve, which presents a historical account of the institution, focusing on the recent mortgage crisis, to mount a withering assault on the policies the Fed is employing to revive the economy today.

The pivotal scene in Bruce’s movie takes place during the dark early days of the twenty-first century. America has just been through a recession (as well as the September 11 attacks), the country is in a demoralized state, and the then Fed chairman, Alan Greenspan, is worried that its torpid economy might slip into deflation.

Not everyone agrees that this is a risk, but a fuzzily bearded Fed governor named Ben S. Bernanke is supplying Greenspan with intellectual backup. In 2002, Bernanke gave an address in Washington, “Deflation: Making Sure ‘It’ Doesn’t Happen Here,” in which he outlined a program to avert the…

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